Andrew H. Wilson
WILSON, RYAN & CAMPILONGO
115 Sansome Street
Fourth Floor
San Francisco, California 94104
(415) 391-3900
Thomas M. Small
Janet Kobrin
SMALL, LARKIN & KIDDE
10940 Wilshire Boulevard, Suite 1800
Los Angeles, California 90024-3945
(310 209-4400
Helena K. Kobrin
7629 Fulton Avenue
North Hollywood, CA 91605
(213) 960-1933
Attorneys for Plaintiffs
RELIGIOUS TECHNOLOGY CENTER and
BRIDGE PUBLICATIONS, INC.
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
RELIGIONS TECHNOLOGY CENTER, a
California non-profit corporation;
and BRIDGE PUBLICATIONS, INC., a
California non-profit corporation, No. C-95-20091-RMW
(EAI)
Plaintiffs,
v. VERIFIED COMPLAINT FOR
INJUNCTIVE RELIEF AND
DAMAGES FOR:
(1) COPYRIGHT
INFRINGEMENT; AND
(2) TRADE SECRETS
MISAPPROPRIATION (Cal.
Civ. Code 3426.1)
NETCOM ON-LINE COMMUNICATION
SERVICES, INC., a Delaware
corporation; DENNIS ERLICH, an
individual; and TOM KLEMESRUD, an
individual, dba CLEARWOOD DATA
SERVICES,
Defendants.
Plaintiffs Religious Technology Center ("RTC") and Bridge
Publications, Inc. ("BPI") allege as follows:
INTRODUCTORY AVERMENTS
1. Defendant Dennis Erlich ("Erlich") has been engaged
in extensive and continuing infringement of copyrights and
misappropriation of trade secrets belonging to plaintiffs.
Erlich has been posting plaintiffs' proprietary materials onto
the Internet computer network ("the Internet") without
authorization from plaintiffs and continues to do so despite
several warnings from plaintiffs to cease and desist his
activities in violation of their rights. Erlich has stated
that "[n]o local government or court in the US has the power to tell
me otherwise." (Exhibit J.) Erlich's access to the Internet
is achieved through two service providers which act as Erlich's
gateway to pass his unlawful copies onto the Internet, where
they may potentially be recopied by millions of users who are able
to access the Internet. Defendant Netcom On-Line Communication
Services, Inc. ("Netcom") provides the computer facilities
through which Erlich obtains access to the Internet for his
unauthorized copies. Defendant Tom Klemesrud, dba Clearwood
Data Services ("Klemesrud") is a subscriber to Netcom's services and
through a bulletin board service which Klemesrud maintains,
acts as the link between Erlich and Netcom, thereby facilitating
Erlich's infringements and misappropriations to reach the
Internet and, in effect, recopying and publishing the
unauthorized copies posted by Erlich. Both Klemesrud and
Netcom have refused to cease and desist from providing this entree
onto the Internet for Erlich's infringements and thereby
contributing to these infringements, in the face of multiple warnings to
cease and desist.
JURISDICTION AND VENUE
2. Subject matter jurisdiction of this action exists
pursuant to 28 U.S.C. 1331 and 1338(a) and (b) in that this
is an action for copyright infringement under 17 U.S.C. 501
joined with a claim for unfair competition through trade secrets
misappropriation. In addition, this court has pendent
jurisdiction over the trade secrets misappropriation claim
alleged herein, as an unfair competition claim that arises out
of the same transactions and occurrences.
3. Venue is proper in this District pursuant to 28
U.S.C. 1391(b) in that events or omissions giving rise to the claims
occurred in this district and one of the defendants is deemed
to reside in this judicial district.
THE PARTIES
4. RTC is, and was at all times relevant herein, a
California non-profit religious corporation having its
principal office in the City of Los Angeles, County of Los Angeles, State
of California.
5. BPI is, and was at all times relevant therein, a
California non-profit religious corporation having its
principal office in the City of Los Angeles, County of Los Angeles, State
of California.
6. Plaintiffs are informed and believe, and on that
basis allege, that defendant Netcom is a Delaware corporation having
its principal place of business in the City of San Jose, County
of Santa Clara, State of California.
7. Plaintiffs are informed and believe, and on that
basis allege, that defendant Erlich is a resident of the City of
Glendale, County of Los Angeles, State of California.
8. Plaintiffs are informed and believe, and on that
basis allege, that defendant Klemesrud, is a resident of the City of
North Hollywood, County of Los Angeles, State of California.
GENERAL ALLEGATIONS
A. The Copyrighted Published and Unpublished Works of L. Ron
Hubbard
9. L. Ron Hubbard, a United States citizen who died in
1986, was a world-renowned philosopher and the prolific author
of numerous original works on applied religious philosophy and
spiritual healing technology, including training materials and
course manuals of the Scientology religion (hereinafter the
"Religion") of which Mr. Hubbard was the founder. Certain of
Mr. Hubbard's original written and recorded works have been
published and made generally available, while others have not.
Among the unpublished works is a body of special works, hereinafter
sometimes referred to as the "Advanced Technology materials,"
which contains confidential and proprietary information ("the
Advanced Technology") constituting trade secrets.
10. A list of the published literary works (hereinafter
the "Published Literary Works") that were created by Mr. Hubbard
and are relevant to this action is attached hereto as Exhibit "A,"
showing the titles of the works along with the numbers and
dates of the applicable United States copyright registrations.
Copies of the Published Literary Works are not attached in view of
their bulk, but will be available separately.
11. A list of the unpublished literary works (hereinafter
the "Unpublished Confidential Works") that were created by Mr.
Hubbard and are relevant to this action is attached as Exhibit
"B," showing the titles of the works along with the numbers and
dates of the applicable United States copyright registrations.
Copies of the Unpublished Confidential Works are not attached
in view of their bulk and confidentiality, but redacted copies
will be made available separately.
12. Initially, L. Ron Hubbard owned all rights in his
literary works, both published and unpublished, and all rights
the Advanced Technology, and granted licenses to others under h
rights, including the right to publish the Published Literary
Works and the right to use and license the use of the Advanced
Technology, with the obligation to protect the confidentiality
of the Advanced Technology and the Advanced Technology materials.
13. In 1982, L. Ron Hubbard assigned to plaintiff RTC his
entire right, title and interest (apart from copyrights) in and
to the Advanced Technology, including all rights to use and to
license the use of the Advanced Technology in the United
States. This assignment includes the obligation to protect the
confidentiality of the Advanced Technology and enforce the
obligation of confidentiality of all those who have received
disclosures of the Advanced Technology. A true and correct
copy of this assignment is annexed as Exhibit C to this Complaint.
14. Following Mr. Hubbard's death in 1986, ownership of
the copyrights in the Published Literary Works and the Unpublished
Confidential Works passed to his Estate, which granted to RTC,
on September 17, 1987, an exclusive license in the copyrights
pertaining to the Unpublished Confidential Works, with the
right and obligation to enforce all the copyrights in those works. A
true and correct copy of this License Agreement is annexed to
this complaint as Exhibit D.
15. In 1989, the assets of the Estate of L. Ron Hubbard,
including the copyrights pertaining to the Literary Works and
the Unpublished Confidential Works, were distributed to Author's
Family Trust-B ("the Trust"), and in 1993, the assets of the
Trust were distributed to Church of Spiritual Technology, a
California nonprofit religious corporation ("CST") which now is
the owner of the copyrights in the Published Literary Works and
the Unpublished Confidential Works. While the copyrights in
these works were held by the Trust, the Trustee entered into an
exclusive license agreement with BPI (hereinafter "the Literary
Agreement") which granted to BPI, inter alia, the exclusive
right to print, publish and sell the Published Literary Works, and to
make and publish compilations and derivative works of and from
the Published Literary Works, and to enforce all rights in the
Published Literary Works. A true and correct copy of the
Literary Agreement is attached hereto as Exhibit E.
16. In an agreement dated November 29, 1993, CST assumed
and affirmed the Trust's September 17, 1987, license to RTC
regarding all copyrights pertaining to the Unpublished Literary
Works with the right and obligation to enforce all the
copyrights in these works. A true and correct copy of that Assignment
and Assumption agreement is attached as Exhibit F. In an agreement
dated November 29, 1993, CST also assumed and affirmed the
Literary Agreement with BPI. A true and correct copy of that
Assignment and Assumption agreement is attached as Exhibit G.
17. The Published Literary Works and the Unpublished
Confidential Works were wholly original with Mr. Hubbard and
are copyrightable subject matter under the laws of the United
States. Mr. Hubbard and his successors and licensees have complied in
all respects with the copyright laws of the United States, secured
the exclusive rights in and to the copyrights in the works, and
received from the Register of Copyrights Certificates of
Registration of these copyrights. Attached hereto as Exhibit H
are true and correct copies of those Certificates of
Registration.
18. The Advanced Technology contained in the Unpublished
Confidential Works is of immense value to plaintiffs, who have
taken and continue to take substantial measures to protect the
confidentiality of the Advanced Technology. These measures
include, inter alia, the numbering of all copies of the
materials containing Advanced Technology; locking all such materials in
locked cabinets or safes when not in use; logging of the
materials upon each use; electronically connecting the
materials to the cabinets in which they are stored and to the tables on
which they are used and monitoring of those connections by
security computers and alarm systems; issuing photo-identity
cards to those who are authorized to access the materials;
separating the Advanced Technology course rooms from all other
parts of the organization; locking the doors of the Advanced
Technology course rooms at all times and magnetically locking
them while materials are moving between a file cabinet and the
table where they will be used; and posting security personnel
at all times. RTC derives independent economic value from the
Advanced Technology, which is not generally known to the public
or to others who can obtain economic value from its disclosure
or use.
B. Defendant's Violations of Plaintiff's Rights
19. Defendants have been infringing plaintiffs'
copyrights in the Published Literary Works (Exhibit A) and in the
Unpublished Confidential Works (Exhibit B) by reproducing each
of those works electronically and publishing the works on the
Internet, all without any authorization from the plaintiffs.
20. Erlich is a former Scientologist who became a
parishioner of the Religion in or about 1968 and served in
various capacities in Churches of Scientology in the United
States between 1968 and about 1982. While a parishioner and
staff member of the Religion, Erlich received Scientology
ministerial training to enable him to provide ministerial
counselling services, known as "auditing," and received access
to a wide variety of written materials pertaining to the Religion
and its services and training, including the Published Literary
Materials and the Unpublished Confidential Materials.
21. Erlich left the Religion in or about 1982, and
subsequently has been engaged in activities hostile to the
Religion. Among those activities are the unauthorized copying
of the Published Literary Works and the Unpublished Confidential
Works, and the unauthorized publication of those copies on the
Internet.
22. No one has access to the Unpublished Confidential
Works without permission or unless they were obtained through illicit
means. Erlich could only have obtained copies of these
materials through his own theft, or by having received stolen property
from another.
23. Plaintiffs are informed and believe, and on that
basis allege, that defendant Netcom is engaged in the business of
providing access to others to the Internet for fees, and for
that purpose maintains and operates one or more computer facilities
in this judicial district through which customers of Netcom are
electronically connected to the Internet and send and receive
electronic messages that pass through the Internet to others.
24. Plaintiffs are informed and believe, and on that
basis allege, that Defendant Klemesrud is engaged in the business of
operating a computer service for subscribers, for fees, and for
that purpose maintains and operates one or more computer
facilities that, among other things, provide access to the
Internet through Netcom's computer facility, to which Klemesrud
is a subscriber and for which service Klemesrud pays Netcom a
fee. Plaintiffs are informed and believe, and on that basis
allege, that Klemesrud's service is in the nature of a computer
Bulletin Board Service ("BBS").
25. Plaintiffs are informed and believe, and on that
basis allege, that, during the past approximately six months or less,
Erlich has, without authorization, reproduced the Unpublished
Confidential Works listed in Exhibit "B," in which the
exclusive rights under copyrights are owned by RTC, and has, without
authorization, electronically published copies of these works
in violation of the copyrights of RTC.
26. Plaintiffs are informed and believe, and on that
basis
allege, that, during the past approximately six months or less,
Erlich has, without authorization, reproduced the Published
Literary Works listed in Exhibit "A," in which the exclusive
rights under copyrights are owned by BPI, and has, without
authorization, electronically published copies of these works
in violation of the copyrights of BPI.
27. Plaintiffs are informed and believe, and on that
basis allege, that the infringing acts of Erlich alleged in
paragraphs 23 and 24 of this Complaint, and each such infringing act,
were performed through and with the assistance of the computer
facilities of Klemesrud and Netcom, and of each of them, and
caused those copies to be published, without authorization, on
the Internet through a newsgroup, or public discussion group,
called "alt.religion.scientology"; and further that Klemesrud
and Netcom, and each of them, thus have reproduced and published
plaintiffs' works listed in Exhibits A and B, and each such
work, without the authorization of plaintiffs. In this manner,
Klemesrud and Netcom have infringed, and contributorily
infringed, plaintiffs' copyrights.
28. Plaintiffs have objected repeatedly to the actions of
Erlich, Klemesrud and Netcom, as aforesaid, have informed each
of them that the actions constitute copyright infringement and
trade secret misappropriation, and have demanded that they cease and
desist from further infringement, misappropriation, and
contributory infringement. True and correct copies of selected
letters of plaintiffs' counsel to defendants are attached
hereto as Exhibit "I."
29. Erlich has refused to cease and desist from his
infringement, and has responded to plaintiffs' letters with
further unauthorized reproduction and publication in violation
of plaintiffs' copyrights. Erlich also has made defiant responses
to plaintiffs claiming the right to violate plaintiffs' rights.
He has said no local government or court in the U.S. has the
power to tell him otherwise. True and correct copies of
Erlich's responses are attached hereto as Exhibit "J".
30. Klemesrud and Netcom have refused to cease and desist
from receiving, transmitting and publishing Erlich's
unauthorized copies of plaintiffs' copyrighted works. True and correct
copies of Klemesrud's and Netcom's responses are attached hereto as
Exhibits "K" and "L," respectively.
31. All copying and publishing by Erlich of the works
listed in Exhibits A and B has been unauthorized and constitute
willful copyright infringement.
32. All copying and publication by Klemesrud and Netcom
of works transmitted through their facilities by Erlich after they
received notice of plaintiffs' rights and the continuing
violation of those rights by Erlich constitute willful
copyright infringement.
FIRST CLAIM FOR RELIEF
(Copyright Infringement of Published Literary Works,
17 U.S.C. 101 et seq.,
Against All Defendants by BPI)
33. BPI incorporates by reference the allegations
contained in paragraphs 2 through 31 above as though set forth fully
herein.
34. The Published Literary Works are protected under the
Copyright Act of 1909, 17 U.S.C. 1 et seq. (repealed), and
the Copyright Act of 1976, 17 U.S.C. 101 et seq., as amended.
35. The foregoing acts of defendants violate BPI's
exclusive rights to reproduce, publish and display the
Published Literary Works, listed in Exhibit A hereto, all in violation of
BPI's exclusive copyrights under 17 U.S.C. 106. Such acts
constitute copyright infringement under 17 U.S.C. 501 and
have contributed to infringement by others.
36. Unless restrained, defendants will continue the acts
complained of herein, to BPI's irreparable injury.
37. Defendants' unlawful acts set forth above constitute
willful copyright infringement under 17 U.S.C. 504.
38. As a direct and proximate result of the foregoing
acts of defendant, BPI has suffered damages in an amount which
cannot now be ascertained but that is capable of proof at trial.
39. In the alternative, BPI seeks statutory damages from
defendants under 17 U.S.C. 504(c)(1) and (2) for such
infringement of BPI's copyrights in the Published Literary
Works, in the amount of $100,000 for each such work.
SECOND CLAIM FOR RELIEF
(Copyright Infringement of Unpublished Confidential
Works
17 U.S.C. 101 et seq.
Against All Defendants by RTC)
40. RTC incorporates by reference the allegations
contained in paragraphs 2 through 31 above as though set forth fully
herein.
41. The unpublished Confidential Works are protected
under the Copyright Act of 1909, 17 U.S.C. 1 et seq. (repealed),
and the Copyright Act of 1976, 17 U.S.C. 101 et seq.
42. The foregoing acts of defendants violate RTC's
exclusive rights to reproduce, publish and display the
Unpublished Confidential Works, listed in Exhibit B hereto, all
in violation of RTC's exclusive copyrights under 17 U.S.C.
106. Such acts constitute copyright infringement under 17 U.S.C.
501 and have contributed to infringement by others.
43. Unless restrained, defendants will continue the acts
complained of herein, to RTC's irreparable injury. 44.
Defendants' unlawful acts set forth above constitute willful
copyright infringement under 17 U.S.C. 504.
45. As a direct and proximate result of the foregoing
acts of defendant, RTC has suffered damages in an amount which
cannot now be ascertained or computed but that is capable of proof at
trial.
46. In the alternative, RTC seeks statutory damages from
defendants under 17 U.S.C. 504(c)(1) and (2) for infringement
of RTC's copyrights in the Unpublished Confidential Works, in
the amount of $100,000 for such work.
THIRD CLAIM FOR RELIEF
(Misappropriation of Trade Secrets,
Against Erlich by RTC)
47. RTC incorporates by reference the allegations in
paragraphs 2 through 31 above as though set forth fully herein.
48. Erlich was employed between 1975 and 1982 as a member
of the staff of the Church of Scientology Flag Service
organization ("Flag"). Prior to working for Flag, Erlich was a
parishioner of another advanced Church of Scientology known as
Church of Scientology Advanced organization of Los Angeles
("AOLA"). Flag is licensed by RTC for the use of the Advanced
Technology in accordance with Church doctrine, with disclosure
strictly limited to its staff and parishioners who are
qualified, according to religious tenets, to receive these materials,
and who undertake the obligation to maintain their confidentiality.
All staff members of Flag, including Erlich, were and are
required to agree to be bound by all administrative and
ecclesiastical policies of the Church of Scientology, which
require that all Advanced Technology materials be kept
confidential at all times and that each person who receives a
disclosure of any of the Advanced Technology materials agree
not to disclose the Advanced Technology to anyone not authorized to
receive it.
49. At various times from 1968 through 1982, Erlich
received Scientology ministerial training to enable him to
provide ministerial counselling services, known within the
Churches of Scientology as "auditing," to the Church's
parishioners. During this training and as a staff member of
Flag, Erlich studied, acknowledged, and agreed to be bound by
the policy requiring extreme security precautions to be taken with
regard to the Advanced Technology materials and the requirement
of agreeing to maintain the confidentiality and the security of
the Advanced Technology materials before being permitted access
to the Advanced Technology.
50. As a staff member of Flag, Erlich agreed that he
would protect and maintain confidential all information contained in
the Advanced Technology that was disclosed to him. As a result
of his acceptance of those confidentiality obligations,
confidential information contained in the Advanced Technology
materials and constituting trade secrets, including the
Unpublished Confidential Works, was disclosed to Erlich. Such
information was of a highly confidential and proprietary nature
and Erlich received the information in trust and confidence.
51. RTC and BPI are members of the group of entities for
whose benefit the contracts, policies, rules and doctrines of
Flag are created and maintained.
52. Erlich left the Religion in or about 1982 and has
subsequently been engaged in various activities hostile to the
Religion. Upon leaving the Religion, Erlich lost any rights
and privileges he had acquired as a Scientology minister and any
right to hold himself out as such.
53. By his acts, as aforesaid, Erlich has disclosed,
without authorization, confidential, trade secrets information
constituting portions of the Advanced Technology that are
contained in the Unpublished Confidential Works listed in
Exhibit B hereto, in violation of his long-standing obligations to
maintain and protect the secrecy of that information.
54. Erlich's acts, as aforesaid, were done with full
knowledge that the Unpublished Confidential Works contained
confidential trade secrets information, and with intent to
publicize that confidential information.
55. By his acts, as aforesaid, Erlich has misappropriated
RTC's trade secrets in violation of RTC's rights under
California law, California Civil Code 3426.1 et seq.
56. Unless restrained by this Court, Erlich will continue
the acts complained of herein, and RTC will incur (and is
currently incurring) irreparable injury, for which there is no
adequate remedy at law.
57. As a direct and proximate result of the foregoing
acts of Erlich, RTC has suffered damages in an amount which cannot
now be ascertained but that is capable of proof at trial.
58. Plaintiff RTC is informed and believes, and on that
basis alleges, that, in committing the foregoing acts, Erlich
acted with fraud, oppression and malice, thereby entitling
plaintiff to punitive damages in an amount not less that
$500,000.
WHEREFORE, plaintiffs pray for the entry of judgment
against defendants as follows:
1. ON THE FIRST CLAIM FOR RELIEF:
(a) For an award of damages to BPI against
defendants, and each of them according to proof at trial, and for all
gains, profits and advantages derived by defendants by their
infringement of the copyrights of BPI in the Published Literary
Works;
(b) For an award of statutory damages to BPI under
17 U.S.C. 504(c)(1) of $20,000.00 for each of the Published
Literary Works infringed by defendants Klemesrud and Netcom
and, in addition, an award of statutory damages to BPI of
$100,000.00 for each of the Published Literary Works infringed by Erlich,
pursuant to 17 U.S.C. 504(c)(2);
(c) For an order that defendants, and each of them,
and all of their officers, agents, employees, partners and
attorneys, and all persons in active concert or participation
with them having notice of this order, be enjoined, during the
pendency of this action, and permanently thereafter, from
making or publishing, or causing to be made or published, any
unauthorized reproductions of the Published Literary Works or
of the Unpublished Confidential Works, including, without
limitation, transmitting or loading of any of them into, or
downloading any copies of them from, any computer, database,
information service, electronic bulletin board service or
network; and that defendants, and each of them, be required to
remove from the Internet, Netcom's computer facilities,
Klemesrud's computer facilities, and any other computer
facility, database, information service, bulletin board service, or
network, or other medium, all copies of the Published Literary
Works and the Unpublished Confidential Works which defendants,
or any of them, have loaded or caused to be loaded; and
(d) For an award of BPI's attorneys' fees and costs
pursuant to 17 U.S.C. 505.
2. ON THE SECOND CLAIM FOR RELIEF:
(a) For an award of damages to RTC against
defendants, and each of them according to proof at trial, and for all
gains, profits and advantages derived by defendants by their
infringement of the copyrights of RTC in the Unpublished
Confidential Works;
(b) For an award of statutory damages to RTC under
17 U.S.C. 504(c)(1) of $20,000.00 for infringement of the
copyrights in the Unpublished Confidential Works by defendants
Klemesrud and Netcom and, in addition, an award of statutory
damages to RTC of $100,000.00 for each of the Unpublished
Confidential Works infringed by Erlich, pursuant to 17 U.S.C.
504(c)(2);
(c) For an order that defendants, and each of them,
and all of their officers, agents, employees, partners and
attorneys, and all persons in active concert or participation
with them having notice of this order, be enjoined, during the
pendency of this action and permanently thereafter, from making
or publishing, or causing to be made or published, any
unauthorized reproductions of the Unpublished Confidential
Works, including, without limitation, the transmitting or loading of
any of them onto, or downloading any copies of them from, any
computer, database, information service, electronic bulletin
board service or network, and that defendants, and each of
them, be required to remove from the Netcom's computer facilities,
and Klemesrud's computer facilities, and any other computer
facility database, information service, bulletin board service, or
network, or other medium, all copies of the Unpublished
Confidential Works which defendants, or any of them loaded, or
caused to be loaded; and
(d) For an award of RTC's attorneys' fees and costs
pursuant to 17 U.S.C. 505.
3. ON THE THIRD CLAIM FOR RELIEF:
(a) For an order that Erlich, and all his agents,
employees, partners and attorneys, and all persons in active
concert or participation with them having notice of this Order,
be enjoined, during the pendency of this action and permanently
thereafter, from further unauthorized disclosure of any of the
Unpublished Confidential Works or any of the Advanced
Technology, and specifically from transmitting or otherwise loading of any
of the Advanced Technology materials onto the Netcom's computer
facilities, or Klemesrud's Computer facilities, or any
computer, database information service, electronic bulletin board service
or network, or other medium;
(b) For an order directing Erlich, and his agents,
employees, partners and attorneys, and all persons in active
concert or participation with them having notice of this order,
to return immediately to counsel of record herein for plaintiff
Religious Technology Center all documents in their possession,
custody or control that contain any of the Advanced Technology;
(c) For an order enjoining Erlich and his agents,
employees, partners and attorneys, and all persons in active
concert of participation with them having notice of this Order,
from filing with the Court, except under seal, and from
otherwise disclosing, any documents that contain any of the Advanced
Technology;
(d) For compensatory damages according to proof at
trial; and
(e) For punitive damages in an amount to be
determined at trial.
4. For such other and further relief as this Court deems
just and proper.
DATED: February /8/, 1995 WILSON, RYAN & CAMPILONGO
By: /s/
Andrew H. Wilson
Thomas M. Small
Janet A. Kobrin
SMALL, LARKIN & KIDDE
Helena K. Kobrin
Attorneys for Plaintiffs
RELIGIOUS TECHNOLOGY CENTER and
BRIDGE PUBLICATIONS, INC.
VERIFICATION
I, Warren McShane, am the President of Religious
Technology
Center, plaintiff in this action. I have read the VERIFIED
COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES FOR: (1) COPYRIGHT
INFRINGEMENT; AND (2) TRADE SECRETS MISAPPROPRIATION (CAL. CIV.
3426.1) and know the contents thereof.
The same is true of my own knowledge, except as to matters
which are stated on information and belief, or are based on the
personal knowledge of a co-plaintiff, and as to those matters,
I believe them to be true.
I declare under penalty of perjury that the foregoing is
true and correct. Executed this 7th day of February 1995, at
Los Angeles, California.
/s/
Warren McShane
VERIFICATION
I, John Goodwin, am the President of Bridge Publications,
Inc., plaintiff in this action. I have read the VERIFIED
COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES FOR: (1) COPYRIGHT
INFRINGEMENT; AND (2) TRADE SECRETS MISAPPROPRIATION (CAL. CIV.
3426.1) and know the contents thereof.
The same is true of my own knowledge, except as to matters
which are stated on information and belief, or are based on the
personal knowledge of a co-plaintiff, and as to those matters,
I believe them to be true.
I declare under penalty of perjury that the foregoing is
true and correct. Executed this 7th day of February 1995, at
Los Angeles, California.
/s/
John Goodwin
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
RELIGIOUS TECHNOLOGY CENTER, a
California non-profit corporation; and BRIDGE
PUBLICATIONS, INC., a California non-profit
corporation,
Plaintiffs,
v.
NETCOM ON-LINE COMMUNICATION
SERVICES, INC., a Delaware corporation;
DENNIS ERLICH, an individual; and TOM
KLEMESRUD, an individual, dba
CLEARWOOD DATA SERVICES,
Defendants.
NO. C-95-20091 RMW
ORDER DENYING DEFENDANT
NETCOM'S MOTION FOR SUMMARY
JUDGMENT; DENYING DEFENDANT
KLEMESRUD'S MOTION FOR JUDGMENT
ON THE PLEADINGS; AND DENYING
PLAINTIFFS' MOTION FOR PRELIMINARY
INJUNCTION AGAINST NETCOM AND
KLEMESRUD
This case concerns an issue of first impression regarding intellectual
property rights in cyberspace. [1] Specifically, this order addresses
whether the operator of a computer bulletin board service ("BBS"), and
the large Internet [2] access provider that allows that BBS to reach
the Internet,
[page 2]
should be liable for copyright infringement committed by a subscriber
of the BBS.
Plaintiffs Religious Technology Center ("RTC") and Bridge
Publications, Inc. ("BPI") hold copyrights in the unpublished and
published works of L. Ron Hubbard, the late founder of the Church of
Scientology ("the Church"). Defendant Dennis Erlich ("Erlich") is a
former minister of Scientology turned vocal critic of the Church,
whose pulpit is now the Usenet newsgroup [4] alt.religion.scientology
("a.r.s."), an on-line forum for discussion and criticism of
Scientology. Plaintiffs maintain that Erlich infringed their
copyrights when he posted portions of their works on
[page 3]
a.r.s. Erlich gained his access to the Internet through defendant
Thomas Klemesrud's ("Klemesrud's") BBS "support.com." Klemesrud's BBS
is not directly linked to the Internet, but gains its connection
through the facilities of defendant Netcom On-Line Communications,
Inc. ("Netcom"), one of the largest providers of Internet access in
the United States.
After failing to convince Erlich to stop his postings, plaintiffs
contacted defendants Klemesrud and Netcom. Klemesrud responded to
plaintiffs' demands that Erlich be kept off his system by asking
plaintiffs to prove that they owned the copyrights to the works posted
by Erlich. However, plaintiffs refused Klemesrud's request as
unreasonable. Netcom similarly refused plaintiffs' request that
Erlich not be allowed to gain access to the Internet through its
system. Netcom contended that it would be impossible to prescreen
Erlich's postings and that to kick Erlich off the Internet meant
kicking off the hundreds of users of Klemesrud's BBS. Consequently,
plaintiffs named Klemesrud and Netcom in their suit against Erlich,
although only on the copyright infringement claims. [5]
On June 23, 1995, this court heard the parties' arguments on eight
motions, three of which relate to Netcom and Klemesrud and are
discussed in this order: (1) Netcom's motion for summary judgment;
(2) Klemesrud's motion for judgment on the pleadings; [6] and (3)
plaintiffs' motion for a preliminary injunction against Netcom and
Klemesrud. For the reasons set forth below, the court grants in part
and denies in part Netcom's motion for summary judgment and
Klemesrud's motion for judgment on the pleadings and denies
plaintiffs' motion for a preliminary injunction.
_____________________________________________________
[1] Cyberspace is a popular term for the world of electronic
communications over computer networks. See Trotter Hardy, The Proper
Legal Regime for "Cyberspace," 55 U.Pitt.L.Rev. 993, 994 (1994).
[2] "The Internet today is a worldwide entity whose nature cannot be
easily or simply defined. From a technical definition, the Internet
is the 'set of all interconnected IP networks' — the collection of
several thousand local, regional, and global computer networks
interconnected in real time via the TCP/IP Internetworking Protocol
suite. . . ." Daniel P. Dern, The Internet Guide for New Users 16
(1994).
One article described the Internet as
a collection of thousands of local, regional, and global
Internet Protocol networks. What it means in practical terms
is that millions of computers in schools, universities, corporations,
and other organizations are tied together via telephone lines.
The Internet enables users to share files, search for information,
send electronic mail, and log onto remote computers. But it
isn't a program or even a particular computer resource. It remains
only a means to link computer users together.
Unlike on-line computer services such as CompuServe and
America On Line, no one runs the Internet. . . .
No one pays for the Internet because the network itself doesn't
exist as a separate entity. Instead various universities and
organizations pay for the dedicated lines linking their computers.
Individual users may pay an Internet provider for access to the
Internet via its server.
David Bruning, Along the InfoBahn, Astronomy, vol. 23, No. 6, p. 76
(June 1995).
[3] Issues of Erlich's liability were addressed in this court's order
of September 22, 1995. That order concludes in part that a
preliminary injunction against Erlich is warranted because plaintiffs
have shown a likelihood of success on their copyrighted infringement
claims against him. Plaintiffs likely own valid copyrights in
Hubbard's published and unpublished works and Erlich's near-verbatim
copying of substantial portions of plaintiffs' works was not likely a
fair use. To the extent that Netcom and Klemesrud argue that
plaintiffs' copyrights are invalid and that Netcom and Klemesrud are
not liable because Erlich had a valid fair use defense, the court
previously rejected these arguments and will not reconsider them here.
[4] The Usenet has been described as
a worldwide community of electronic BBSs that is closely
associated with the Internet and with the Internet community.
The messages in Usenet are organized into thousands of
topical groups, or "Newsgroups". . . . As a Usenet user, you
read and contribute ("post") to your local Usenet site. Each
Usenet site distributes its users' postings to other Usenet sites
based on various implicit and explicit configuration settings,
and in turn receives postings from other sites. Usenet traffic
typically consists of as much as 30 to 50 Mbytes of messages
per day. Usenet is read and contributed to on a daily basis
by a total population of millions of people. . . . There is no
specific network that is the Usenet. Usenet traffic flows over
a wide range of networks, including the Internet and dial-up
phone links.
Dern, supra, at 196-97.
[5] The First Amended Complaint ("FAC") contains three claims: (1)
copyright infringement of BPI's published literary works against all
defendants; (2) copyright infringement of RTC's unpublished
confidential works against all defendants; and (3) misappropriation of
RTC's trade secrets against defendant Erlich only.
[6] Klemesrud alternatively filed a motion for summary judgment,
which will not be considered at this time because Klemesrud was
unavailable to be deposed in time for plaintiffs' opposition. In a
previous order, the court struck those portions of the motion that
referred to matters outside of the pleadings.
[page 4]
I. NETCOM'S MOTION FOR SUMMARY JUDGMENT OF NONINFRINGEMENT
A. Summary Judgment Standards
Because the court is looking beyond the pleadings in examining this
motion, it will be treated as a motion for summary judgment rather
than a motion to dismiss. Grove v. Mead School District, 753 F.2d
1528, 1532 (9th Cir. 1985). Summary judgment is proper when "the
pleadings, depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law." Fed.R.Civ.P.56(c). There
is a "genuine" issue of material fact only when there is sufficient
evidence such that a reasonable juror could find for the party
opposing the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
251-52 (1986). Entry of summary judgment is mandated against a party
if, after adequate time for discovery and upon motion, the party
fails to make a showing sufficient to establish the existence of an
element essential to that party's case, and on which that party will
bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S.
317, 322 (1986). The court, however, must draw all justifiable
inferences in favor of the nonmoving parties, including questions of
credibility and of the weight to be accorded particular evidence.
Masson v. New Yorker Magazine, Inc., 501 U.S. 496, 520 (1991).
B. Copyright Infringement
To establish a claim of copyright infringement, a plaintiff must
demonstrate (1) ownership of a valid copyright and (2) "copying" [7]
of protectable expression by the defendant. Baxter v. MCA, Inc., 812
F.2d 421, 423 (9th Cir.), cert. denied, 484 U.S. 954 (1987).
Infringement occurs when a defendant violates one of the exclusive
rights of the copyright holder. 17 U.S.C. Section 501(a). These
rights include the right to reproduce the copyrighted work, the right
to prepare derivative works, the right to distribute copies to the
public, and the right to publicly display the work. 17 U.S.C.
Sections 106(1)-(3) & (5). The court has already determined that
plaintiffs have established that they own the
[page 5]
copyrights to all of the Exhibit A and B works, except item 4 of
Exhibit A. [8] The court also found plaintiffs likely to succeed on
their claim that defendant Erlich copied the Exhibit A and B works and
was not entitled to a fair use defense. Plaintiffs argue that,
although Netcom was not itself a source of any of the infringing
materials on its system, it nonetheless should be liable for
infringement, either directly, contributorily, or vicariously. [9]
Netcom disputes these theories of infringement and further aruges that
it is entitled to its own fair use defense.
1. Direct Infringement
Infringement consists of the unauthorized exercise of one of the
exclusive rights of the copyright holder delineated in section 106.
17 U.S.C. Section 501. Direct infringement does not require intent on
any particular state of mind, [10] although willfulness is relevant to
the award of statutory damages. 17 U.S.C. Section 504(c).
Many of the facts pertaining to this motion are undisputed. The court
will address the relevant facts to determine whether a theory of
direct infringement can be supported based on Netcom's alleged
reproduction of plaintiffs' works. The court will look at one
controlling Ninth Circuit decision addressing copying in the context
of computers and two district court opinions addressing the liability
of BBS operators for the infringing activities of subscribers. The
court will additionally examine whether Netcom is liable for
infringing plaintiffs' exclusive rights to publicly distribute and
display their works.
____________________________________________________
[7] In this context, "copying" is "shorthand for the infringing of
any of the copyright owner's five exclusive rights." S.O.S., Inc. v.
Payday, Inc., 886 F.2d 1081, 1085 n.3 (9th Cir. 1989).
[8] The court has under submission plaintiffs' request to expand the
preliminary injunction against Erlich.
[9] Plaintiffs have argued at times during this litigation that
Netcom should only be required to respond after being given notice,
which is only relevant to contributory infringement. Nevertheless,
the court will address all three theories of infringement liability.
[10] The strict liability for copyright infringement is in contrast
to another area of liability affecting online service providers:
defamation. Recent decisions have held that where a BBS exercised
little control over the content of the material on its service, it was
more like a "distributor" than a "republisher" and was thus only
liable for defamation on its system where it knew or should have known
of the defamatory statements. Cubby, Inc. v. CompuServe, Inc., 775
F.Supp. 135 (S.D.N.Y. 1991). By contrast, a New York state court
judge found that Prodigy was a publisher because it held itself out to
be controlling the content of its services and because its used
software to automatically prescreen messages that were offensive or in
bad taste. Stratton Oakmont, Inc. v. Prodigy Services Co., The
Recorder, June 1, 1995, at 7 (excerpting May 24, 1995 Order Granting
Partial Summary Judgment to Plaintiffs).
.
[page 6]
a. Undisputed Facts
The parties do not dispute the basic processes that occur when
Erlich posts his allegedly infringing messages to a.r.s. Erlich
connects to Klemesrud's BBS using a telephone and a modem.
Erlich then transmits his message to Klemesrud's computer, where
they are automatically briefly stored. According to a
prearranged pattern established by Netcom's software, Erlich's
initial act of posting a message to the Usenet results in the
automatic copying of Erlich's message from Klemesrud's computer
onto Netcom's computer and onto other computers on the Usenet.
In order to ease transmission and for the convenience of Usenet
users, usenet servers maintain postings from newsgroups for a
short period of time — eleven days for Netcom's system and three
days for Klemesrud's system. Once on Netcom's computers,
messages are available to Netcom's customers and Usenet
neighbors, who may then download the messages to their own
computers. Netcom's local server makes available its postings to
a group of Usenet servers, which do the same for other servers
until all Usenet sites worldwide have obtained access to the
postings, which takes a matter of hours. Francis Decl. Paragraph
5.
Unlike some other large on-line service providers, such as
CompuServe, America Online, and Prodigy, Netcom does not create
or control the content of the information available to its
subscribers. It also does not monitor messages as they are
posted. It has, however, suspended the accounts of subscribers
who violated its terms and conditions, such as where they had
commercial software in their posted files. Netcom admits that,
although not currently configured to do this, it may be possible
to reprogram its system to screen postings containing particular
words or coming from particular individuals. Netcom, however,
took no action after it was told by plaintiffs that Erlich had
posted messages through Netcom's system that violated plaintiffs'
copyrights, instead claiming that it could not shut out Erlich
without shutting out all of the users of Klemesrud's BBS.
b. Creation of Fixed Copies
The Ninth Circuit addressed the question of what constitutes
infringement in the context of storage of digital information in
a computer's random access memory ("RAM"). MAI Systems Corp. v.
Peak Computer, Inc., 991 F.2d 511, 518 (9th Cir. 1993). In MAI,
the Ninth Circuit upheld a finding of copyright infringement
where a repair person, who was not authorized to use the computer
[page 7]
owner's licensed operating system software, turned on the
computer, thus loading the operating system into RAM for long
enough to check an "error log." Id. at 518-19. Copyright
protection subsists in original works of authorship "*fixed* in
any tangible medium of expression, now known or later developed,
from which they can be perceived, reproduced, or otherwise
communicated, either directly or with the aid of a machine or
device." 17 U.S.C. Section 102 (emphasis added). A work is
"fixed" when its "embodiment in a copy . . . is sufficiently
permanent or stable to permit it to be perceived, reproduced, or
otherwise communicated for a period of more than transitory
duration." Id. Section 101. MAI established that the loading of
data from a storage device into RAM constitutes copying because
that data stays in RAM long enough for it to be perceived. MAI
Systems, 991 F.2d at 518.
In the present case, there is no question after MAI that "copies"
were created, as Erlich's act of sending a message to a.r.s.
caused reproductions of portions of plaintiffs' works on both
Klemesrud's and Netcom's storage devices. Even though the
messages remained on their systems for at most eleven days, they
were sufficiently "fixed" to constitute recognizable copies under
the Copyright Act. See Information Infrastructure Task Force,
Intellectual Property and the National Information
Infrastructure: The Report of the Working Group on Intellectual
Property Rights 66 (1995) ("IITF Report").
c. Is Netcom Directly Liable for Making the Copies?
Accepting that copies were made, Netcom argues that Erlich, and
not Netcom, is directly liable for the copying. MAI did not
address the question raised in this case: whether possessors of
computers are liable for incidental copies automatically made on
their computers using their software as part of a process
initiated by a third party. Netcom correctly distinguishes MAI
on the ground that Netcom did not take any affirmative action
that directly resulted in copying plaintiffs' works other than by
installing and maintaining a system whereby software automaticlly
forwards messages received from subscribers onto the Usenet, and
temporarily stores copies on its system. Netcom's actions, to
the extent that they created a copy of plaintiffs' works, were
necessary to having a working system for transmitting Usenet
postings to and from the Internet. Unlike the defendant in MAI,
neither Netcom nor Klemesrud initiated the copying. The
defendants in MAI turned on their
[page 8]
customers' computers thereby creating temporary copies of the
operating system, whereas Netcom's and Klemesrud's systems can
operate without any human intervention. Thus, unlike MAI, the
mere fact that Netcom's system incidentally makes temporary
copies of plaintiffs' works does not mean Netcom has caused the
copying. [11] The court believes that Netcom's act of designing
or implementing a system that automatically and uniformly creates
temporary copies of all data sent through it is not unlike that
of the owner of a copying machine who lets the public make copies
with it. [12] Although some of the people using the machine may
directly infringe copyrights, courts analyze the machine owner's
liability under the rubric of contributory infringement, not
direct infringement.
___________________________________________________________
[11] One commentator addressed the difficulty in translating
copyright concepts, including the public/private dichotomy, to
the digitized environment. See Niva Elkins-Koren, Copyright Law
and Social Dialogue on the Information Superhighway: The Case
Against Copyright Liability of Bulletin Board Operators, 13
Cardozo Arts&Ent.L.J. 346, 390 (1993). This commentator noted
that one way to characterize a BBS operation is that it "provides
subscribers with access and services. As such, BBS operators do
not create copies, and do not transfer them in any way. Users
post the copies on the BBS, which other users can then read or
download." Id. at 356.
[12] Netcom compares itself to a common carrier that merely acts
as a passive conduit for information. In a sense, a Usenet
server that forwards all messages acts like a common carrier,
passively retransmitting every message that gets sent through it.
Netcom would seem no more liable than the phone company for
carrying an infringing facsimile transmission or storing an
infringing audio recording on its voice mail. As Netcom's
counsel argued, holding such a server liable would be like
holding the owner of the highway, or at least the operator of a
toll booth, liable for the criminal activities that occur on its
roads. Since other similar carriers of information are not
liable for infringement, there is some basis for exempting
Internet access providers from liability for infringement by
their users. The IITF Report concluded that "[i]f an entity
provided only the wires and conduits — such as the telephone
company, it would have a good argument for an exemption if it was
truly in the same position as a common carrier and could not
control who or what was on its system." IITF Report at 122.
Here, perhaps, the analogy is not completely appropriate as
Netcom does more than just "provide the wire and conduits."
Further, Internet providers are not natural monopolies that are
bound to carry all the traffic that one wishes to pass through
them, as with the usual common carrier. See id. at 122 n.392
(citing Federal Communications Commission v. Midwest Video Corp.,
440 U.S. 689, 701 (1979)). Section 111 of the Copyright Act
codifies the exemption for passive carriers who are otherwise
liable for a secondary transmission. 3 Melville B. Nimmer and
David Nimmer, Nimmer on Copyright Section 12.04[B][3], at 12-99
(1995). However, the carrier must not have any direct or
indirect control over the content or selection of the primary
transmission. Id.; 17 U.S.C. Section 111(a)(3). Cf. infra part
I.B.3.a. In any event, common carriers are granted statutory
exemptions for liability that might otherwise exist. Here,
Netcom does not fall under this statutory exemption, and thus
faces the usual strict liability scheme that exists for
copyright. Whether a new exemption should be carved out for
online service providers is to be resolved by Congress, not the
courts. Compare Comment, "Online Service Providers and Copyright
Law: The Need for Change," 1 Syracuse J.Legis.&Pol'y 197, 202
(1995) (citing recommendations of online service providers for
amending the Copyright Act to create liability only where a
"provider has 'actual knowledge that a work that is being or has
been transmitted onto, or stored on, its system is infringing,'
and has the 'ability and authority' to stop the transmission, and
has, after a reasonable amount of time, allowed the infringing
activity to continue'") with IITF Report at 122 (recommending
that Congress not exempt service providers from strict liability
for direct infringements).
.
[page 9]
See, e.g., RCA Records v. All-Fast System, Inc., 594 F.Supp.335
(S.D.N.Y. 1984); 3 Melville B. Nimmer & David Nimmer, Nimmer on
Copyright Section 12.04[A][2][b], at 12-78 to -79 (1995) ("Nimmer
on Copyright"); Elkin-Koren, supra, at 363 (arguing that
"contributory infringement is more appropriate for dealing with
BBS liability, first, because it focuses attention on the
BBS-users relationship and the way imposing liability on BBS
operators may shape this relationship, and second because it
better addresses the complexity of the relationship between BBS
operators and subscribers"). Plaintiffs' theory would create
many separate acts of infringement and, carried to its natural
extreme, would lead to unreasonable liability. It is not
difficult to conclude that Erlich infringes by copying a
protected work onto his computer and by posting a message to a
newsgroup. However, plaintiffs' theory further implicates a
Usenet server that carries Erlich's message to other servers
regardless of whether that server acts without any human
intervention beyond the initial setting up of the system. It
would also result in liability for every single Usenet server in
the worldwide link of computers transmitting Erlich's message to
every other computer. These parties, who are liable under
plaintiffs' theory, do no more than operate or implement a system
that is essential if Usenet messages are to be widely
distributed. There is no need to construe the Act to make all of
these parties infringers. Although copyright is a strict
liability statute, there should still be some element of volition
or causation which is lacking where a defendant's system is
merely used to create a copy by a third party.
Plaintiffs point out that the infringing copies resided for
eleven days on Netcom's computer and were sent out from it onto
the "Information Superhighway." However, under plaintiffs'
theory, any storage of a copy that occurs in the process of
sending a message to the Usenet is an infringement. While it is
possible that less "damage" would have been done if Netcom had
heeded plaintiffs' warnings and acted to prevent Erlich's message
from being forwarded, [13] this is not relevant to its *direct*
liability for copying. The same argument is true of Klemesrud
and any other Usenet server. Whether a defendant makes a direct
copy that constitutes infringement cannot depend on
[page 10]
whether it received a warning to delete the message. See D.C.
Comics, Inc. v Mini Gift, 912 F.2d 29, 35 (2d Cir. 1990). This
distinction may be relevant to contributory infringement,
however.
The court will now consider two district court opinions that have
addressed the liability of BBS operators for infringing files
uploaded by subscribers.
d. Playboy Case
Playboy Enterprises, Inc. v. Frena involvd a suit against the
operator of a small BBS whose system contained files of erotic
pictures. 839 F.Supp. 1552, 1534 (M.D. Fla. 1993). A subscriber
of the defendant's BBS had uploaded files containing digitized
pictures copied from the plaintiff's copyrighted magazine, which
files remained on the BBS for other subscribers to download. Id.
The court did not conclude, as plaintiffs suggest in this case,
that the BBS is itself liable for the unauthorized *reproduction*
of plaintiffs' work; instead, the court concluded that the BBS
operator was liable for violating the plaintiff's right to
publicly *distribute and display* copies of its work. Id. at
1556-57.
In support of their argument that Netcom is directly liable for
copying plaintiffs' works, plaintiffs cite to the court's
conclusion that "[t]here is no dispute that [the BBS operator]
supplied a product containing unauthorized copies of a
copyrighted work. It does not matter that [the BBS operator]
claims he did not make the copies [him]self." Id. at 1556. It
is clear from the context of this discussion [14] that the
Playboy court was looking only at the exclusive right to
distribute copies to the public, where liability exists
regardless of whether the defendant makes copies. Here, however,
plaintiffs do not argue that Netcom is liable for its public
distribution of copies. Instead, they claim that Netcom is
liable because its computers in fact made copies. Therefore, the
above-quoted language has no bearing on the issue of direct
liability for unauthorized reproductions.
________________________________________________________
[13] The court notes, however, that stopping the distribution of
information once it is on the Internet is not easy. The
decentralized network was designed so that if one link on the
chain be closed off, the information will be dynamically rerouted
through another link. This was meant to allow the system to be
used for communication after a catastrophic event that shuts down
part of it. Francis Decl. Paragraph 4.
[14] The paragraph in Playboy containing the quotation begins
with a description of the right of public distribution. Id.
Further, the above quoted language is followed by a citation to a
discussion of the right of public distribution in Jay Dratler,
Jr., Intellectual Property Law: Commercial, Creative and
Industrial Property Section 6.01[3], at 6-15 (1991). This
treatise states that "the distribution right may be decisive, if,
for example, a distributor supplies products containing
unauthorized copies of a copyrighted work but has not made the
copies itself." Id. (citing to Williams Electronics, Inc. v.
Arctic International, Inc., 685 F.2d 870, 876 (3d Cir. 1982)).
In any event, the Williams holding regarding public distribution
was dicta, as the court found that the defendant had also made
copies. Id.
.
[page 11]
Notwithstanding Playboy's holding that a BBS operator may be
directly liable for *distribution or displaying* to the public
copies of protected works, [15] this court holds that the storage
on a defendant's system of infringing copies and retransmission
to other servers is not a direct infringement by the BBS operator
of the exclusive right to *reproduce* the work where such copies
are uploaded by an infringing user. Playboy does not hold
otherwise. [16]
e. Sega Case
A court in this district addressed the issue of whether a BBS
operator is liable for copyright infringement where it solicited
subscribers to upload files containing copyrighted materials to
the BBS that were available for others to download. Sega
Enterprises Ltd. v. MAPHIA, 857 F.Supp. 679, 683 (N.D. Cal.
1994). The defendant's "MAPHIA" BBS contained copies of
plaintiff Sega's video game programs that were uploaded by users.
Id. at 683. The defendant solicited the uploading of such
programs and received consideration for the right to download
files. Id. Access was given for a fee or to those purchasing
the defendant's hardware device that allowed Sega video game
cartridges to be copied. Id. at 683-84. The court granted a
preliminary injunction against the defendant, finding that
plaintiffs had shown a prima facie case of direct and
contributory infringement. Id. at 687. The court found that
copies were made by unknown users of the BBS when files were
uploaded and downloaded. Id. Further, the court found that the
defendant's knowledge of the infringing activities,
encouragement, direction and provision of the facilities through
his operation of the BBS constituted contributory infringement,
even though the defendant did not know exactly when files were
uploaded or downloaded. Id. at 686-87.
This court is not convinced that Sega provides support for a
finding of direct infringement where copies are made on a
defendant's BBS by users who upload files. Although there is
some language in Sega regarding *direct* infringement, it is
entirely conclusory:
Sega has established a prima facie case of direct
copyright infringement under 17 U.S.C. Section 501.
Sega has established that unauthorized copies of its
games are made when such games are uploaded to
the MAPHIA bulletin board, here with the knowledge of
Defendant Scherman. These games are thereby
placed on the storage media of the electronic bulletin
board by unknown users.
Id. at 686 (emphasis added). The court's refrence to the
"knowledge of Defendant" indicates that the court was focusing on
contributory infringement, as knowledge is not an element of
direct infringement. Perhaps, Sega's references to direct
infringement and that "copies . . . are made" are to the direct
liability of the "unknown users," as there can be no contributory
infringement by a defendant without direct infringement by
another. See 3 Nimmer on Copyright Section 12.04[A][3][a], at
12-89. Thus, the court finds that neither Playboy nor Sega
requires finding Netcom liable for direct infringement of
plaintiffs' exclusive right to reproduce their works. [17]
f. Public Distribution and Display?
Plaintiffs allege that Netcom is directly liable for making
copies of their works. See FAC Paragraph 25. They also allege
that Netcom violated their exclusive rights to publicly display
copies of their works. FAC Paragraphs 44, 51. There are no
allegations that Netcom violated plaintiffs' exclusive right to
publicly distribute their works. However, in their discussion of
direct infringement, plaintiffs insist that Netcom is liable for
"maintain[ing] copies of [Erlich's] messages on its server for
eleven days for access by its subscribers and 'USENET neighbors'"
and they compare this case to the Playboy case, which discussed
the right of public distribution. Opp'n at 7. Plaintiffs also
argued this theory of infringement at oral argument. Tr. [18]
5:22. Because this could be an attempt to argue that Netcom has
infringed plaintiffs' rights of public distribution and display,
the court will address these arguments.
_______________________________________________________
[15] Given the ambiguity in plaintiffs' reference to a violation
of the right to "publish" and to Playboy it is possible that
plaintiffs are also claiming that Netcom infringed their
exclusive right to publicly distribute their works. The court
will address this argument infra.
[16] The court further notes that Playboy has been much
criticized. See, e.g., L. Rose, NetLaw 91-92 (1995). The
finding of direct infringement was perhaps influenced by the fact
that there was some evidence that defendants in fact knew of the
infringing nature of the works, which were digitized photographs
labeled "Playboy" and "Playmate."
[17] To the extent that Sega holds that BBS operators are
directly liable for copyright infringement when users upload
infringing works to their systems, this court respectfully
disagrees with the court's holding for the reasons discussed
above. Further, such a holding was dicta, as there was evidence
that the defendant knew of the infringing uploads by users and,
in fact, actively encouraged such activity, thus supporting the
contributory infringement theory. Id. at 683.
[18] Refrences to "Tr." are to the reporter's transcript of the
June 23, 1995 hearing on these motions.
.
[page 13]
Playboy concluded that the defendant infringed the plaintiff's
exclusive rights to publicly distribute and display copies of its
works. 839 F.Supp. at 1556-57. The court is not entirely
convinced that the mere possession of a digital copy on a BBS
that is accessible to some members of the public constitutes
direct infringement by the BBS operator. Such a holding suffers
from the same problem of causation as the reproduction argument.
Only the subscriber should be liable for causing the distribution
of plaintiffs' work, as the contributing actions of the BBS
provider are automatic and indiscriminate. Erlich could have
posted his messages through countless access providers and the
outcome would be the same: anyone with access to Usenet
newsgroups would be able to read his messages. There is no
logical reason to draw a line around Netcom and Klemesrud and say
that they are uniquely responsible for distributing Erlich's
messages. Netcom is not even the first link in the chain of
distribution — Erlich had no direct relationship with Netcom but
dealt solely with Klemesrud's BBS, which used Netcom to gain its
Internet access. Every Usenet server has a role in the
distribution, so plaintiffs' argument would create unreasonable
liability. Where the BBS merely stores and passes along all
messages sent by its subscribers and others, the BBS should not
be seen as causing these works to be publicly distributed or
displayed.
Even accepting the Playboy court's holding, the case is factually
distinguishable. Unlike the BBS in that case, Netcom does not
maintain an archive of files for its users. Thus, it cannot be
said to be "suppl[ying] a product." In contrast to some of its
larger competitors, Netcom does not create or control the content
of the information available to its subscribers; it merely
provides *access* to the Internet, whose content is controlled by
no single entity. Although the Internet consists of many
different computers networked together, some of which may contain
infringing files, it does not make sense to hold the operator of
each computer liable as an infringer merely because his or her
computer is linked to a computer with an infringing file. It
would be especially inappropriate to hold liable a service that
acts more like a conduit, in other words, one that does not
itself keep an archive of files for more than a short duration.
Finding such a service liable would involve an unreasonably broad
construction of public distribution and display rights. No
purpose would be served by holding liable those who have no
ability to control the information to which their subscribers
have access, even though they might be in some sense helping to
achieve the Internet's automatic "public
[page 14]
distribution" and the users' "public" display of files.
g. Conclusion
The court is not persuaded by plaintiffs' argument that Netcom is
directly liable for the copies that are made and stored on its
computer. Where the infringing subscriber is clearly directly
liable for the same act, it does not make sense to adopt a rule
that could lead to the liability of countless parties whose role
in the infringement is nothing more than setting up and operating
a system that is necessary for the functioning of the Internet.
Such a result is unnecessary as there is already a party directly
liable for causing the copies to be made. Plaintiffs
occasionally claim that they only seek to hold liable a party
that refuses to delete infringing files after they have been
warned. However, such liability cannot be based on a theory of
direct infringement, where knowledge is irrelevant. The court
does not find workable a theory of infringement that would hold
the entire Internet liable for activities that cannot reasonably
be deterred. Billions of bits of data flow through the Internet
and are necessarily stored on servers throughout the network and
it is thus practically impossible to screen out infringing bits
from noninfringing bits. Because the court cannot see any
meaningful distinction (without regard to knowledge) between what
Netcom did and what every other Usenet server does, the court
finds that Netcom cannot be held liable for direct infringement.
Cf. IITF Report at 69 (noting uncertainty regarding whether BBS
operator should be directly liable for reproduction or
distribution of files uploaded by a subscriber). [19]
2. Contributory Infringement
Netcom is not free from liability just because it did not
directly infringe plaintiffs' works; it may still be liable as a
contributory infringer. Although there is no statutory rule of
liability for infringement committed by others,
[t]he absence of such express language in the copyright
statute does
[page 15]
not preclude the imposition of liability for copyright
infringement on certain parties who have not themselves
engaged in the infringing activity. For vicarious liability
is imposed in virtually all areas of the law, and the concept
of contributory infringement is merely a species of the
broader problem of identifying the circumstances in
which it is just to hold one individual accountable for the
actions of another.
Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 435
(1984) (footnote omitted). Liability for participation in the
infringement will be established where the defendant, "with
knowledge of the infringing activity, induces, causes or
materially contributes to the infringing conduct of another."
Gershwin Publishing Corp. v. Columbia Artists Management, Inc.,
443 F.2d 1159, 1162 (2d Cir., 1971).
__________________________________________
[19] Despite that uncertainty, the IITF Report recommends a
strict liability paradigm for BBS operators. See IITF Report at
122-24. It recommends that Congress not exempt on-line service
providers from strict liability because this would prematurely
deprive the system of an incentive to get providers to reduce the
damage to copyright holders by reducing the chances that users
will infringe by educating them, requiring indemnification,
purchasing insurance, and where efficient, developing
technological solutions to screening out infringement. Denying
strict liability in many cases would leave copyright owners
without an adequate remedy since direct infringers may act
anonymously or pseudonymously or may not have the resources to
pay a judgment. id.: see also Hardy, supra.
.
a. Knowledge of Infringing Activity
Plaintiffs insist that Netcom knew that Erlich was infringing
their copyrights at least after receiving notice from plaintiffs'
counsel indicating that Erlich has posted copies of their works
onto a.r.s. through Netcom's system. Despite this knowledge,
Netcom continued to allow Erlich to post messages to a.r.s. and
left the allegedly infringing messages on its system so that
Netcom's subscribers and other Usenet servers could access them.
Netcom argues that it did not possess the necessary type of
knowledge because (1) it did not know of Erlich's planned
infringing activities when it agreed to lease its facilities to
Klemesrud, (2) it did not know that Erlich would infringe prior
to any of his postings, (3) it is unable to screen out infringing
postings before they are made, and (4) its knowledge of the
infringing nature of Erlich's postings was too equivocal given
the difficulty in assessing whether the registrations were valid
and whether Erlich's use was fair. The court will address these
arguments in turn.
Netcom cites cases holding that there is no contributory
infringement by the lessors of premises that are later used for
infringement unless the lessor had knowledge of the intended use
at the time of the signing of the lease. See e.g., Deutsch v.
Arnold, 98 F.2d 686, 688 (2d Cir. 1938). [20] The contribution
to the infringement by the defendant in Deutsch was merely to
lease use of the
[page 16]
premises to the infringer. Here, Netcom not only leases space
but also serves as an access provider, which includes the storage
and transmission of informaton necessary to facilitate Erlich's
postings to a.r.s. Unlike a landlord, Netcom retains some
control over the use of its system. See infra part I.B.3.a.
Thus, the relevant time frame for knowledge is not when Netcom
entered into an agreement with Klemesrud. It should be when
Netcom provided its services to allow Erlich to infringe
plaintiffs' copyrights. Cf. Screen Gems-Columbia Music, Inc. v.
Mark-Fi Records, Inc., 256 F.Supp. 399, 403 (S.D.N.Y. 1966)
(analyzing knowledge at time that defendant rendered it
particular service). It is undisputed that Netcom did not know
that Erlich was infringing before it received notice from
plaintiffs. Netcom points out that the alleged instances of
infringement occurring on Netcom's system all happened prior to
December 29, 1994, the date on which Netcom first received notice
of plaintiffs' infringement claim against Erlich. See Pisani
Feb. 8, 1995 Decl., Paragraph 6 & Exs. (showing latest posting
made on December 29, 1994); McShane Feb. 8, 1995 Decl.; FAC
Paragraphs 36-38 & Ex. I. Thus, there is no question as to
whether Netcom knew or should have known of Erlich's infringing
activities that occurred more than 11 days before receipt of the
December 28, 1994 letter.
However, the evidence reveals a question of fact as to whether
Netcom knew or should have known that Erlich had infringed
plaintiffs' copyrights following receipt of plaintiffs' letter.
Because Netcom was arguably participating in Erlich's public
distribution of plaintiffs' works, there is a genuine issue as to
whether Netcom knew of any infringement by Erlich before it was
too late to do anything about it. If plaintiffs can prove the
knowledge element, Netcom will be liable for contributory
infringement since its failure to simply cancel Erlich's
infringing message and thereby stop an infringing copy from being
distributed worldwide constitutes substantial participation in
Erlich's public distribution of the message. Cf. R. T. Nimmer,
The Law of Computer Technology Paragraph 15.11B, at S15-42 (2d
ed. 1994) (opining that "where information service is less
directly involved in the enterprise of creating unauthorized
copies, a finding of contributory infringement is not likely").
Netcom argues that its knowledge after receiving notice of
Erlich's alleged infringing activities was too equivocal given
the difficulty in assessing whether registrations are valid and
[page 17]
whether use is fair. Although a mere unsupported allegation of
infringement by a copyright owner may not automaticlly put a
defendant on notice of infringing activity, Netcom's position
that liability must be unequivocal is unsupportable. While
perhaps the typical infringing activities of BBSs will involve
copying software, where BBS operators are better equipped to
judge infringement, the fact that this involves written works
should not distinguish it. Where works contain copyright notices
within them, as here, it is difficult to argue that a defendant
did not know that the works were copyrighted. To require proof
of valid registrations would be impractical and would perhaps
take too long to verify, making it impossible for a copyright
holder to protect his or her works in some cases, as works are
automatically deleted less than two weeks after they are posted.
The court is more persuaded by the argument that it is beyond the
ability of a BBS operator to quickly and fairly determine when a
use is not infringement where there is at least a colorable claim
of fair use. Where a BBS operator cannot reasonably verify a
claim of infringement, either because of a possible fair use
defense, the lack of copyright notices on the copies, or the
copyright holder's failure to provide the necessary documentation
to show that there is a likely infringement, the operator's lack
of knowledge will be found reasonable and there will be no
liability for contributory infringement for allowing the
continued distribution of the works on its system.
Since Netcom was given notice of an infringement claim before
Erlich had completed his infringing activity, there may be a
question of fact as to whether Netcom knew or should have known
that such activities were infringing. Given the context of a
dispute between a former member and a church he is criticizing,
Netcom may be able to show that its lack of knowledge that Erlich
was infringing was reasonable. However, Netcom admits that it
did not even look at the postings once given notice and that had
it looked at the copyright notice and statements regarding
authorship, it would have triggered an investigation into whether
there was an infringement. Kobrin June 7, 1995 Dcl., Ex. H,
Hoffman Depo. at 125-128. These facts are sufficient to raise a
question as to Netcom's knowledge once it received a letter from
plaintiffs on December 29, 1994. [21]
_____________________________________________________________
[20] Adopting such a rule would relieve a BBS of liability for
failing to take steps to remove infringing works from its system
even after being handed a court's order finding infringement.
This would be undesirable and is inconsistent with Netcom's
counsel's admission that Netcom would have an obligation to act
in such circumstances. Tr. 35:25; see also Tr. 42:18-42:20
[21] The court does not see the relevance of plaintiffs'
argument that Netcom's failure to investigate their claims of
infringement or take actions against Erlich was a departure from
Netcom's normal procedure. A policy and practice of acting to
stop postings where there is inadequate knowledge of infringement
in no way creates a higher standard of care under the Copyright
Act as to subsequent claims of user infringement.
.
[page 18]
b. Substantial Participation
Where a defendant has knowledge of the primary infringer's
infringing activities, it will be liable if it "induces, causes
or materially contributes to the infringing conduct of" the
primary infringer. Gershwin Publishing, 443 F.2d at 1162. Such
participation must be substantial. Apple Computer, Inc. v.
Microsoft Corp., 821 F.Supp. 616, 625 (N.D.Cal. 1993), aff'd, 35
F.3d 1435 (9th Cir. 1994); Demetriades v. Kaufmann, 690 F.Supp.
289, 294 (S.D.N.Y. 1988).
Providing a service that allows for the automatic distribution of
all Usenet postings, infringing and noninfringing, goes well
beyond renting a premises to an infringer. See Fonovisa, Inc. v.
Cherry Auction, Inc., 847 F.Supp. 1492, 1496 (E.D. Cal. 1994)
(finding that renting space at swap meet to known bootleggers not
"substantial participation" in the infringers' activities). It
is more akin to the radio stations that were found liable for
rebroadcasting an infringing broadcast. See, e.g., Select
Theatres Corp. v. Ronzoni Macaroni Corp., 59 U.S.P.Q. 288, 281
(S.D.N.Y. 1943). Netcom allows Erlich's infringing messages to
remain on its system and be further distributed to other Usenet
servers worldwide. It does not completely relinquish control
over how its system is used, unlike a landlord. Thus, it is
fair, assuming Netcom is able to take simple measures to prevent
further damage to plaintiffs' copyrighted works, to hold Netcom
liable for contributory infringement where Netcom has knowledge
of Erlich's infringing postings yet continues to aid in the
accomplishment of Erlich's purpose of publicly distributing the
postings. Accordingly, plaintiffs do raise a genuine issue of
material fact as to their theory of contributory infringement as
to the postings made after Netcom was on notice of plaintiffs'
infringement claim.
3. Vicarious Liability
Even if plaintiffs cannot prove that Netcom is contributorily
liable for its participation in infringing activity, it may still
seek to prove vicarious infringement based on Netcom's
relationship to Erlich. A defendant is liable for vicarious
liability for the actions of a primary infringer where the
[page 19]
defendant (1) has the right and ability to control the
infringer's acts and (2) receives a direct financial benefit from
the infringement. See Shapiro, Bernstein & Co. v. H. L. Green
Co., 316 F.2d 304, 306 (2d Cir. 1963). Unlike contributory
infringement, knowledge is not an element of vicarious liability.
3 Nimmer on Copyright Section 12.04[A][1], at 12-70.
a. Right and Ability to Control
The first element of vicarious liability will be met if
plaintiffs can show that Netcom has the right and ability to
supervise the conduct of its subscribers. Netcom argues that it
does not have the right to control its users' postings before
they occur. Plaintiffs dispute this and argue that Netcom's
terms and conditions, to which its subscribers [22] must agree,
specify that Netcom reserves the right to take remedial action
against subscribers. See, e.g., Francis Depo. at 124-126.
Plaintiffs argue that under "netiquette," the informal rules and
customs that have developed on the Internet, violation of
copyrights by a user is unacceptable and the access provider has
a duty [sic] take measures to prevent this; where the immediate
service provider fails, the next service provider up the
transmission stream must act. See Castleman Decl. Paragraphs
32-43. Further evidence of Netcom's right to restrict infringing
activity is its prohibition of copyright infringement and its
requirement that its subscribers indemnify it for any damage to
third parties. See Kobrin May 5, 1995 Decl., Ex. G. Plaintiffs
have thus raised a question of fact as to Netcom's right to
control Erlich's use of its services.
___________________________________________________
[22] In this case, Netcom is even further removed from Erlich's
activities. Erlich was in a contractual relationship only with
Klemesrud. Netcom thus dealt directly only with Klemesrud.
However, it is not crucial that Erlich does not obtain access
directly through Netcom. The issue is Netcom's right and ability
to control the use of its system, which it can do indirectly by
controlling Klemesrud's use.
.
Netcom argues that it could not possibly screen messages before
they are posted given the speed and volume of the data that goes
through its system. Netcom further argues that it has never
exercised control over the content of its users' postings.
Plaintiffs' expert opines otherwise, stating that with an easy
software modification Netcom could identify postings that
contain particular words or come from particular individuals.
Castleman Decl. Paragraphs 39-43; see also Francis Depo. at
262-63; Hoffman Depo. at 173-74, 178. [23] Plaintiffs further
dispute Netcom's claim that it could not limit
[page 20]
Erlich's access to Usenet without kicking off all 500 subscribers
of Klemesrud's BBS. As evidence that Netcom has in fact
exercised its ability to police its users' conduct, plaintiffs
cite evidence that Netcom has acted to suspend subscribers'
accounts on over one thousand occasions. See Ex. 3 (listing
suspensions of subscribers by netcom for commercial advertising,
posting obscene materials, and off-topic postings). Further
evidence shows that Netcom can delete specific postings. See Tr.
9:16. Whether such sanctions occurred before or after the
abusive conduct is not material to whether Netcom can execute
control. The court thus finds that plaintiffs have raised a
genuine issue of fact as to whether Netcom has the right and
ability to exercise control over the activities of its
subscribers, and of Erlich in particular.
b, Direct Financial Benefit
Plaintiffs must further prove that Netcom receives a direct
financial benefit from the infringing activities of its users.
For example, a landlord who has the right and ability to
supervise the tenant's activities is vicariously liable for the
infringements of the tenant where the rental amount is
proportional to the proceeds of the tenant's sales. Shapiro,
Bernstein, 316 F.2d at 306. However, where a defendant rents
space or services on a fixed rental fee that does not depend
on the nature of the activity of the lessee, courts usually find
no vicarious liability because there is no direct financial
benefit from the infringement. See, e.g., Roy Export Co. v.
Trustees of Columbia University, 344 F.Supp. 1350, 1353 (S.D.N.Y.
1972) (finding no vicarious liability of university because no
financial benefit from allowing screening of bootlegged films);
Fonovisa, 847 F.Supp. at 1496 (finding swap meet operators did
not financially benefit from fixed fee); see also Kelly Tickle,
Comment, The Vicarious Liability of Electronic Bulletin Board
Operators for the Copyright Infringement Occurring on Their
Bulletin Boards, 80 Iowa L.Rev. 391, 415 (1995) (arguing that BBS
operators "lease cyberspace" and should thus be treated like
landlords, who are not liable for infringement that occurs on
their premises).
Plaintiffs argue that courts will find a financial benefit
despite fixed fees. In Polygram
[page 21]
International Publishing, Inc. v. Nevada/TIG, Inc., 855 F.Supp.
1314, 1330-33 (D. Mass. 1994), the court found a trade show
organizer vicariously liable for the infringing performance of an
exhibitor because, although the infringement did not affect the
fixed rental fee received by the organizers, the organizers
benefitted from the performances, which helped make the show a
financial success. But see Artists Music, Inc. v. Reed
Publishing, Inc., 31 U.S.P.Q.2d 1623, 1994 WL 191643, at *6
(S.D.N.Y. 1994) (finding no vicarious liability for trade show
organizers where revenues not increased because of infringing
music performed by exhibitors). Plaintiffs cite two other cases
where, despite fixed fees, defendants received financial benefits
from allowing groups to perform infringing works over the radio
without having to get an ASCAP license, which minimized the
defendants' expenses. See Boz Scaggs Music v. KND Corp., 491
F.Supp. 980, 913 (D. Conn. 1980); Realsongs v. Gulf Broadcasting
Corp., 824 F.Supp. 89, 92 (M.D. La. 1993). Plaintiffs' cases are
factually distinguishable. Plaintiffs cannot provide any
evidence of a direct financial benefit received by Netcom from
Erlich's infringing postings. Unlike Shapiro, Bernstein, and
like Fonovisa, Netcom receives a fixed fee. There is no evidence
that infringement by Erlich, or any other user of Netcom's
services, in any way enhances the value of Netcom's services to
subscribers or attracts new subscribers. Plaintiffs argue,
however, that Netcom somehow derives a benefit from its purported
"policy of refusing to take enforcement actions against its
subscribers and others who transmit infringing messages over its
computer networks." Opp'n at 18. Plaintiffs point to Netcom's
advertisements that, compared to competitors like CompuServe and
America Online, Netcom provides easy, regulation-free
Internet access. Plaintiffs assert that Netcom's policy attracts
copyright infringers to its system, resulting in a direct
financial benefit. The court is not convinced that such an
argument, if true, would constitute a direct financial benefit to
Netcom from Erlich's infringing activities. See Fonovisa, 847
F.Supp. at 1496 (finding no direct financial benefit despite
argument that lessees included many vendors selling counterfeit
goods and that clientele sought "bargain basement prices").
Further, plaintiffs' argument is not supported by probative
evidence. The only "evidence" plaintiffs cite for their
supposition is the declaration of their counsel, Elliot Abelson,
who states that
[o]n April 7, 1995, in a conversation regarding Netcom's
position
[page 22]
related to this case, Randolf Rice, attorney for Netcom,
informed me that Netcom's executives are happy about the
publicity it is receiving in the press as a result of this case.
Mr. Rice also told me that Netcom was concerned that it would
lose business if it took action against Erlich or Klemesrud in
connection with Erlich's infringements.
Abelson Decl. Paragraph 2. Netcom objects to this declaration as
hearsay and as inadmissible evidence of statements made in
compromise negotiations. Fed.R.Ev. 801, 408. Whether or not
this declaration is admissible, it does not support plaintiffs'
argument that Netcom either has a policy of not enforcing
violations of copyright laws by its subscribers or, assuming such
a policy exists, that Netcom's policy directly financially
benefits Netcom, such as by attracting new subscribers. Because
plaintiffs have failed to raise a question of fact on this vital
element, their claim of vicarious liability fails. See Roy
Export, 344 F.Supp. at 1353.
__________________________________________________________
[23] However, plaintiffs submit no evidence indicating Netcom,
or anyone, could design software that could determine whether a
posting is infringing.
.
4. First Amendment Argument
Netcom argues that plaintiffs' theory of liability contravenes
the first amendment, as it would chill the use of the Internet
because every access provider or user would be subject to
liability when a user posts an infringing work to a usenet
newsgroup. While the court agrees that an overbroad
injunction might implicate the First Amendment, see In re Capital
Cities/ABC, Inc., 918 F.2d 140, 144 (11th Cir. 1990), [24]
imposing liability for infringement where it is otherwise
appropriate does not necessarily raise a First Amendment issue.
The copyright concepts of the idea/expression dichotomy and the
fair use defense balance the important First Amendment
rights with the constitutional authority for "promot[ing] the
progress of science and useful arts," U.S. Const. art. I, section
8, cl. 8; 1 Nimmer on Copyright Section 1.10[B], at 1-17 to 83.
Netcom argues that liability here would force Usenet servers to
perform the impossible — screening all the information that
comes through their systems. However, the court is not convinced
that Usenet servers are directly liable for causing a copy to be
made, and absent evidence of knowledge and participation or
control and direct profit, they will not be contributorily or
vicariously liable. If Usenet servers were responsible for
screening
[page 23]
all messages coming through their systems, this could have a
serious chilling effect on what some say may turn out to be the
best public forum for free speech yet devised. See Jerry
Berman & Daniel J. Weitzner, Abundance and User Control:
Renewing the Democratic Heart of the First Amendment in the Age
of Interactive Media, 104 Yale L.J. 1619, 1624 (1995) (praising
decentralized newtorks for opening access to all with no entity
stifling independent sources of speech); Rose, supra, at 4. [25]
Finally, Netcom admits that its First Amendment argument is
merely a consideration in the fair use argument, which the court
will now address. See Reply at 24.
_____________________________________________________
[24] For example, plaintiffs' demand that the court order Netcom
to terminate Klemesrud's BBS's access to the Internet, thus
depriving all 500 of his subscribers, would be overbroad, as it
would unnecessarily keep hundreds of users, against whom there
are no allegations of copyright infringement, from accessing a
means of speech. The overbroadness is even more evident if,
as plaintiffs contend, there is a way to restrict only Erlich's
access to a.r.s.
[25] Netcom additionally argues that plaintiffs' theory of
liability would have a chilling effect on users who would be
liable for merely browsing infringing works. Browsing
technically causes an infringing copy of the digital information
to be made in the screen memory. MAI holds that such
a copy is fixed even when information is temporarily placed in
RAM, such as the screen RAM. The temporary copying involved in
browsing is only necessary because humans cannot
otherwise perceive digital information. It is the functional
equivalent of reading, which does not implicate the copyright
laws and may be done by anyone in a library without the
permission of the copyright owner. However, it can be argued
that the effects of digital browsing are different because
millions can browse a single copy of a work in cyberspace, while
only one can read a library's copy at a time.
Absent a commercial or profit-depriving use, digital browsing is
probably fair use; there could hardly be a market for licensing
the temporary copying of digital works onto computer screens to
allow browsing. Unless such a use is commercial, such as where
someone reads a copyrighted work online and therefore decides not
to purchase a copy from the copyright owner, fair use is
likely. Until reading a work online becomes as easy and
convenient as reading a paperback, copyright owners do not have
much to fear from digital browsing and there will not likely be
much market effect.
Additionally, unless a user has reason to know, such as from the
title of a message, that the message contains copyrighted
materials, the browser will be protected by the innocent
infringer doctrine, which allows the court to award no damages in
appropriate circumstances. In any event, users should hardly
worry about a finding of direct infringement; it seems highly
unlikely from a practical matter that a copyright owner could
prove such infringement or would want to sue such an individual.
.
5. Fair Use Defense
Assuming plaintiffs can prove a violation of one of the exclusive
rights guaranteed in section 106, there is no infringement if the
defendant's use is fair under section 108. The proper focus
here is on whether Netcom's actions qualify as fair use, not on
whether Erlich himself engaged in fair use; the court has already
found that Erlich was not likely entitled to his own fair use
defense, as his postings contained large portions of plaintiffs'
published and unpublished works quoted verbatim with little added
commentary.
Although the author has the exclusive rights to reproduce,
publicly distribute, and publicly display a copyrighted work
under section 106, these rights are limited by the defense of
"fair use." 17 U.S.C. Section 107. The defense "permits and
requires courts to avoid rigid application of the
[p. 24]
copyright statute when, on occasion, it would stifle the very
creativity which that law is designed to foster." Campbell v.
Acuff-Rose Music, Inc. 114 S.Ct. 1164, 1170 (1994) (citation
omitted). Congress has set out four nonexclusive factors to be
considered in determining the availability of fair use defense:
(1) the purpose and character of the use, including whether
such use is of a commercial nature or is for nonprofit
educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in
relation to the copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value
of the copyrighted work.
17 U.S.C. Section 107. The fair use doctrine calls for a
case-by-case analysis. Campbell, 114 S.Ct. at 1170. All of the
factors "are to be explored, and the results weighed together, in
light of the purposes of copyright." Id. at 1170-71.
a. First Factor: Purpose and Character of the Use
The first statutory factor looks to the purpose and character of
the defendant's use. Netcom's use of plaintiffs' works is to
carry out its commercial function as an Internet access provider.
Such use, regardless of the underlying uses made by Netcom's
subscribers, is clearly commercial. Netcom's use, though
commercial, also benefits the public in allowing for the
functioning of the Internet and the dissemination of other
creative works, a goal of the Copyright Act. See Sega v.
Accolade, 977 F.2d 1510, 1523 (9th Cir. 1992) (holding that
intermediate copying to accomplish reverse engineering of
software fair use despite commercial nature of activity;
considering public benefit of use). The Campbell Court
emphasized that a commercial use does not dictate against a
finding of fair use, as most of the uses listed in the statute
are "generally conducted for profit in this country." 114 S.Ct.
at 1174. Although Netcom gains financially from its distribution
of messages to the Internet, its financial incentive is unrelated
to the infringing activity and the defendant receives no direct
financial benefit from the acts of infringement. Therefore, the
commercial nature of the defendant's activity should not be
dispositive. Moreover, there is no easy way for a defendant like
Netcom to secure a license for carrying every possible type of
copyrighted work onto the Internet.
[page 25]
Thus, it should not be seen as "profit[ing] from the exploitation
of the copyrighted work without paying the customary prices."
Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S.
539, 562 (1985). It is undisputed that, unlike the defendants in
Playboy and Sega, Netcom does not directly gain anything from the
content of the information available to its subscribers on the
Internet. See supra part I.B.3.b. Because it does not itself
provide the files or solicit infringing works, its purpose is
different from that of the defendants in Playboy and Sega.
Because Netcom's use of copyrighted materials served a completely
different function than that of the plaintiffs, this factor
weighs in Netcom's favor, see Hustler Magazine, Inc. v. Moral
Majority, Inc., 606 F.Supp. 1526, 1535 (C.D. Cal. 1985), aff'd,
796 F.2d 1148 (9th Cir. 1986), notwithstanding the otherwise
commercial nature of Netcom's use.
b. Second Factor: Nature of the Copyrighted Work
The second factor focuses on two different aspects of the
copyrighted work: whether it is published or unpublished and
whether it is informational or creative. [26] Plaintiffs rely
on the fact that some of the works transmitted by Netcom were
unpublished and some were arguably highly creative and original.
However, because Netcom's use of the works was merely to
facilitate their posting to the Usenet, which is an entirely
different purpose than plaintiffs' use (or, for that matter,
Erlich's use), the precise nature of those works is not important
to the fair use determination. See Campbell, 114 S.Ct. at 1175
(finding creative nature of work copied irrelevant where copying
for the purposes of parody); Hustler Magazine, 606 F.Supp. at
1537; 3 Nimmer on Copyright Section 13.05[A][2][a], at 13-177
("It is sometimes necessary, in calibrating the fair use defense,
to advert to the defendant's usage simultaneously with the nature
of the plaintiff's work").
______________________________________________________________
[26] A recent report noted that a third aspect of the nature of
the work may be relevant: whether it is in digital or analog
form. IITF Report at 78. Although the copyright laws were
developed before digital works existed, they have certainly
evolved to include such works, and this court can see no reason
why works should deserve less protection because they are in
digital form, especially where, as here, they were not put in
such form by plaintiffs.
.
c. Third Factor: Amount and Substantiality of the Portion Used
The third factor concerns both the percentage of the original
work that was copied and whether that portion constitutes the
"heart" of the copyrighted work. Harper & Row, 471 U.S. at
564-65. Generally, no more of a work may be copied than is
necessary for the particular use. See Supermarket of Homes v.
San Fernando Valley Board of Realtors, 786 F.2d 1400, 1409 (9th
Cir. 1986). The copying of an entire work will ordinarily
militate against a finding of fair use, although this is not a
per se rule. Sony, 464 U.S. at 449-450.
Plaintiffs have shown that Erlich's postings copied substantial
amounts of the originals or, in some cases, the entire works.
Netcom, of course, made available to the Usenet exactly what was
posted by Erlich. As the court found in Sony, the mere fact that
all of a work is copied is not determinative of the fair use
question, where such total copying is essential given the purpose
of the copying. Id. (allowing total copying in context of
time-shifting copyrighted television shows by home viewers). For
example, where total copying was necessary to carry out the
defendants' beneficial purpose of reverse engineering software to
get at the ideas found in the source code, the court found fair
use. Sega v. Accolade, 977 F.2d at 1526-27. Here, Netcom copied
no more of plaintiffs' works than necessary to function as a
Usenet server. Like the defendant in Sega v. Accolade, Netcom
had no practical alternative way to carry out its socially useful
purpose; a Usenet server must copy all files, since the
prescreening of postings for potential copyright infringement is
not feasible. 977 F.2d at 1526. Accordingly, this factor should
not defeat an otherwise valid defense.
d. Fourth Factor: Effect of the Use upon the Potential Market
for the Work
The fourth and final statutory factor concerns "the extent of
market harm caused by the particular actions of the alleged
infringer" and "whether unrestricted and widespread conduct of
the sort engaged in by the defendant . . . would result in a
substantially adverse impact on the potential market for the
original." Campbell, 114 S.Ct. at 1177 (quoting 3 Nimmer on
Copyright Section 13.05[A][4]) (remanding for consideration of
this factor). Although the results of all four factors must be
weighed together, Id. at 1171, the fourth factor is the most
important consideration, 3 Nimmer on Copyright Section
13.05[A][4], at 13-188 to -189 (citing Harper & Row, 471 U.S. at
566), 13-207 (observing that fourth factor explains results in
recent Supreme Court cases).
Netcom argues that there is no evidence that making accessible
plaintiffs' works, which consist of religious scriptures and
policy letters, will harm the market for those works by
preventing
[page 27]
someone from participating in the Scientology religion because
they can view the works on the Internet instead. Further, Netcom
notes that the relevant question is whether the postings fulfill
the demand of an individual who is affected by the criticism
posted by Erlich. Netcom argues that the court must focus on the
"normal market" for the copyrighted work, which in this case is
through a Scientology-based organization. Plaintiffs respond
that the Internet's extremely widespread distribution — where
more than 25 million people worldwide have access — multiplies
the effects of market substitution. In support of its motion for
a preliminary injunction against Erlich, plaintiffs submitted
declarations regarding the potential effect of making the
Church's secret scriptures available over the Internet.
Plaintiffs pointed out that, although the Church currently faces
no competition, groups in the past have used stolen copies of the
Church's scriptures in charging for Scientology-like religious
training. See e.g., Bridge Publications, Inc. v. Vien, 827
F.Supp. 629, 633-34 (S.D. Cal. 1993); Religious Technology Center
v. Wollersheim, 796 F.2d 1076, 1078-79 (9th Cir. 1986), cert.
denied, 479 U.S. 1103 (1987). This evidence raises a genuine
issue as to the possibility that Erlich's postings, made
available over the Internet by Netcom, could hurt the market for
plaintiffs' works.
.
e. Equitable Balancing
In balancing the various factors, the court finds that there is a
question of fact as to whether there is a valid fair use defense.
Netcom has not justified its copying plaintiffs' works to the
extent necessary to establish entitlement to summary judgment in
light of evidence that it knew that Erlich's use was infringing
and had the ability to prevent its further distribution. While
copying all or most of a work will often preclude fair use,
courts have recognized the fair use defense where the purpose of
the use is beneficial to society, complete copying is necessary
given the type of use, the purpose of the use is completely
different than the purpose of the original, and there is no
evidence that the use will significantly harm the market for the
original. This case is distinguishable from those cases
recognizing fair use despite total copying. In Sony, the home
viewers' use was not commercial and the viewers were allowed to
watch the entire show for free. In Sega v. Accolade, the
complete copying was necessitated to access the unprotectable
idea in the original. Here, plaintiffs never gave either Erlich
or Netcom permission to view or copy their works. Netcom's use
has some commercial aspects. Futher, Netcom's copying is not for
the purpose of getting to the unprotected idea behind plaintiffs'
works. Although plaintiffs may ultimately lose on their
infringement claims if, among other things, they cannot prove
that posting their copyrighted works will harm the market for
these works, see Religious Technology Center v. Lerma, _____
F.Supp _____, No. 95-1107-A, slip op. at 10 (E.D. Va. August 30,
1995) (finding fair use defense exists where no separate market
for works because Scientologists cannot effectively use them
without the Church's supervision); Religious Technology Center v.
F.A.C.T.Net, Inc., No. 95-B-2143, slip op. at 11-14 (D. Colo.
September 13, 1995) (finding no showing of a potential effect on
the market for plaintiffs' works), fair use presents a factual
question on which plaintiffs have at least raised a genuine issue
of fact. Accordingly, the court does not find that Netcom's use
was fair as a matter of law.
C. Conclusion
The court finds that plaintiffs have raised a genuine issue of
fact regarding whether Netcom should have known that Erlich was
infringing their copyright after receiving a letter from
plaintiffs, whether Netcom substantially participated in the
infringement, and whether Netcom has a valid fair use defense.
Accordingly, Netcom is not entitled to summary judgment on
plaintiffs' claim of contributory copyright infringement.
However, plaintiffs' claims of direct and vicarious infringement
fail.
.
II. KLEMESRUD'S MOTION FOR JUDGMENT ON THE PLEADINGS
A. Standards for Judgment on the Pleadings
A motion for judgment on the pleadings pursuant to Federal Rule
of Civil Procedure 12c is directed at the legal sufficiency of a
party's allegations. A judgment on the pleadings is proper when
there are no issues of material fact, and the moving party is
entitled to judgment as a matter of law. General Conference
Corp. v. Seventh Day Adventist Church, 887 F.2d 228, 230 (9th
Cir. 1989), cert. denied, 493 U.S. 1079 (1990); Hal Roach Studios
v. Richard Feiner & Co., 896 F.2d 1542, 1550 (9th Cir. 1990). In
ruling on a motion for judgment on the pleadings, district courts
must accept all
[page 29]
material allegations of fact alleged in the complaint as true,
and resolve all doubts in favor of the nonmoving party. Id. The
court need not accept as true conclusory allegations or legal
characterizations. Western Mining Council v. Watt, 643 F.2d 618,
624 (9th Cir. 1981). Materials submitted with the complaint may
be considered. Hal Roach Studios, 896 F.2d at 1555. All
affirmative defenses must clearly appear on the face of the
complaint. McCalden v. California Library Ass'n, 995 F.2d 1214,
1219 (9th Cir. 1990).
B. Copyright Infringement
1. Direct Infringement
First, plaintiffs allege that Klemesrud directly infringed their
copyrights by "reproduc[ing] and publish[ing] plaintiffs' works.
FAC Paragraph 35. The complaint alleges that "Erlich . . .
caused copies of [plaintiffs' works] to be published, without
authorization, on the BBS computer maintained by Klemesrud" and
that "Klemesrud's BBS computer, after receiving and storing for
some period of time the copies of the Works sent to it from
Erlich, created additional copies of the works and sent these
copies to Netcom's computer." FAC Paragraph 34. The allegations
against Klemesrud fail for the same reason the court found that
Netcom was entitled to judgment as a matter of law on the direct
infringement claim. There are no allegations that Klemesrud took
any affirmative steps to cause the copies to be made. The
allegations, in fact, merely say that "Erlich . . . caused" the
copies to be made and that Klemesrud's *computer*, not Klemesrud
himself, created additional copies. There are no allegations in
the complaint to overcome the missing volitional or causal
elements necessary to hold a BBS operator directly liable for
copying that is automatic and caused by a subscriber. See supra
part I.B.1.
2. Contributory Infringement
Second, the complaint alleges that Klemesrud is contributorily
negligent. FAC Paragraph 35. It further alleges that plaintiffs
repeatedly objected to Klemesrud's actions and informed him that
Erlich's (and his) actions constituted infringement. FAC
Paragraph 36. A letter attached to the complaint indicates that
such notice was first sent to Klemesrud on December 30, 1994.
FAC, Ex. I. Despite the warnings, Klemesrud allegedly refused to
assist plaintiffs in compelling Erlich to stop his postings and
refused to stop receiving, copying, transmitting and publishing
the postings. FAC Paragraph 38. To state a claim for
[page 30]
contributory infringement, plaintiffs must allege that Klemesrud
knew or should have known of Erlich's infringing actions at the
time they occurred and yet substantially participated by
"induc[ing], caus[ing] or materially contribut[ing] to the
infringing conduct" of Erlich. Gershwin, 443 F.2d at 1162. For
the reasons discussed in connection with Netcom's motion, the
court finds plaintiffs' pleadings sufficient to raise an issue of
contributory infringement.
3. Vicarious Liability
The third theory of liability argued by plaintiffs, vicarious
liability, is not specifically mentioned in the complaint.
Nonetheless, this theory fails as a matter of law because there
are insufficient factual allegations to support it. Plaintiffs
must show that Klemesrud had the right and ability to control
Erlich's activities and that Klemesrud had a direct financial
interest in Erlich's infringement. Shapiro, Bernstein, 316 F.2d
at 306. A letter from Klemesrud to plaintiffs' counsel states
that Klemesrud would comply with plaintiffs' request to take
actions against Erlich by deleting the infringing postings from
his BBS if plaintiffs mailed him the original copyrighted work
and he found that they matched the allegedly infringing posting.
FAC, Ex. J. Plaintiffs argue that this letter indicates
Klemesrud's ability and right to control Erlich's activities on
the BBS. The court finds that this letter, construed in the
light most favorable to plaintiffs, raises a question as to
whether plaintiffs can show that Klemesrud, in the operation of
his BBS, could control Erlich's activities, such as by deleting
infringing postings. However, plaintiffs' failure to allege a
financial benefit is fatal to their claim for vicarious
liability.
The complaint alleges that Klemesrud is in the business of
operating a BBS for subscribers for a fee. The complaint does
not say how the fee is collected, but there are no allegations
that Klemesrud's fee, or any other direct financial benefit
received by Klemesrud, varies in any way with the content of
Erlich's postings. Nothing in or attached to the complaint
states that Klemesrud in any way profits from allowing Erlich to
infringe copyrights. Plaintiffs are given 30 days leave in which
to amend to cure this pleading deficiency if they can do so in
good faith.
.
III. PRELIMINARY INJUNCTION AGAINST NETCOM AND KLEMESRUD
A. Legal Standards for a Preliminary Injunction
[page 31]
A party seeking a preliminary injunction may establish its
entitlement to equitable relief by showing either (1) a
combination of probable success on the merits and the possibility
of irreparable injury, or (2) serious questions as to these
matters and the balance of hardships tipping sharply in the
movant's favor. First Brands Corp. v. Fred Meyer, Inc., 809 F.2d
1378, 1381 (9th Cir. 1987). These two tests are not separate,
but represent a "continuum" of equitable discretion whereby the
greater the relative hardship to the moving party, the less
probability of success need be shown. Regents of University of
California v. American Broadcasting Cos., 747 F.2d 511, 515 (9th
Cir. 1984). The primary purpose of a preliminary injunction is
to preserve the status quo pending a trial on the merits. Los
Angeles Memorial Coliseum Commission v. National Football Lague,
634 F.2d 1197, 1200 (9th Cir. 1980).
B. Likelihood of Success
The court find that plaintiffs have not met their burden of
showing a likelihood of success on the merits as to either Netcom
or Klemesrud. The only viable theory of infringement is
contributory infringement, and there is little evidence that
Netcom or Klemesrud knew or should have known that Erlich was
engaged in copyright infringement of plaintiffs' works and was
not entitled to a fair use defense, especially as they did not
receive notice of the alleged infringement until after all but
one of the postings were completed. Further, their participation
in the infringement was not substantial. Accordingly, plaintiffs
will not likely prevail on their claims.
C. Irreparable Injury
The court will presume irreparable harm for the copyright claim
where plaintiffs have shown a likelihood of success on their
claims of infringement. Johnson Controls, Inc. v. Phoenix
Control Systems, Inc., 886 F.2d 1173, 1174 (9th Cir. 1989).
Here, however, plaintiffs have not made an adequate showing of
likelihood of success. More importantly, plaintiffs have not
shown that the current preliminary injunction prohibiting Erlich
from infringing plaintiffs' copyrights will not be sufficient to
avoid any harm to plaintiffs' intellectual property rights.
D. First Amendment Concerns
There is a strong presumption against any injunction that could
act as a "prior restraint" on free speech, citing CBS, Inc. v.
Davis, 114 S.Ct. 912, 913-14 (1994) (Justice Blackman, as Circuit
[page 32]
Justice, staying a preliminary injunction prohibiting CBS from
airing footage of inside of meat packing plant). Because
plaintiffs seek injunctive relief that is broader than necessary
to prevent Erlich from committing copyright infringement, there
is a valid First Amendment question raised here. Netcom and
Klemesrud play a vital role in the speech of their users.
Requiring them to prescreen postings for possible infringement
would chill their users' speech. Cf. In re Capital Cities/ABC,
Inc., 918 F.2d at 144.
E. Conclusion
Plaintiffs have not shown a likelihood of success on the merits
of their copyright claims nor irreparable harm absent an
injunction against defendants Netcom and Klemesrud. Accordingly,
plaintiffs are not entitled to a preliminary injunction.
IV. ORDER
The court denies Netcom's motion for summary judgment and
Klemesrud's motion for judgment on the pleadings, as a triable
issue of fact exists on the claim of contributory infringement.
The court also gives plaintiffs 30 days leave in which to amend
to state a claim for vicarious liability against defendant
Klemesrud, if they can do so in good faith. Plaintiffs'
application for a preliminary injunction against defendants
Netcom and Klemesrud is denied.
The parties shall appear for a case management conference at
10:30 a.m. on Friday, January 19, 1996. The deadline for
completing required disclosures is January 5, 1996. The joint
case management conference statement must be filed by January 12,
1996.
DATED: 11/21/95
[signature]
RONALD M. WHYTE
United States District Judge
.